Low Inventories Favour Copper, Zinc in H2

LONDON, July 16 -- Low inventory levels, combined with favourable supply and demand fundamentals, will benefit copper and zinc ahead of other London Metal Exchange (LME) metals, Investec Asset Management said on Wednesday.

    Speaking at a presentation on Investec's 2009 second half outlook, George Cheveley, a manager on the global commodities team, said base metal prices were now at reasonable levels.

    Supply has been cut in zinc much more aggressively earlier this year and in copper it has always struggled to meet demand over the last few years," said Cheveley, whose group have over $2.5 billion invested in commodities and resource equities.

    Copper, used in power and construction, was traded at about $5,250 a tonne on Wednesday, and has risen by about 60 percent this year. Zinc was at $1,540 a tonne.

    Copper hit an all-time high of $8,940 a tonne in July 2008, while zinc touched a record high of $4,580 in November 2006.

    LME inventories in copper are at 261,100 tonnes -- its lowest level since November 2008, while zinc is at 353,850 tonnes -- down from levels above 780,000 tonnes in April 2004.

    Investec forecasts copper to average $4,600 a tonne this year, with zinc seen at around $1,700/$1,800 a tonne.

    Next year it sees copper prices at an average of $5,400.

    Cheveley said that after the seasonal summer lull, Chinese demand would remain robust, while the end of de-stocking in the western world would support copper and zinc.

    Aluminium, used in the transport and packaging industries, is currently traded at about $1,650 a tonne, while steel ingredient nickel was at $15,850.

    Aluminium stocks are currently at record levels above 4.5 million tonnes, while nickel inventories also remain near record highs above 108,000 tonnes.

    "In aluminium and nickel, we've seen big increases in supply overtaking demand in the past year in a big way," Cheverly said.

    Like other base metals, both have experienced a strong recovery this year, as Chinese stockpiling boosted prices.

    "There has been very good fundamental demand in China," said Cheveley. "Fundamental underlying demand has been very strong in China and it's not just about Chinese government intervention of stockpiling."

    "That is fundamental demand going into infrastructure projects."

    China represents over 40 percent of global demand for aluminium, copper, zinc, lead and nickel.

    On precious metal markets, Investec expects gold to trade in a range between $880 and $1,100 an ounce this year.

    The fund also forecasts Brent crude to average $55 a barrel in 2009 and $65 a barrel the year after.

    (Source: Reuters)